Gold Souq 1
Caution all around... Gold shoppers are put off by the $1,900 an ounce price levels, while tourist led buying is yet to take off at the Dubai Gold Souq. Image Credit: Virendra Saklani/Gulf News

Dubai: The first ‘To Let’ signs are showing at Dubai’s historic Gold Souq as jewellery retailers choose to close down some of their outlets rather than keep on engaging in rent negotiations with their landlords. More than 10 outlets have shuttered since the pandemic broke out in March, and gold demand took a direct hit as tourist shoppers vanished from the Gold Souq.

Retailers and wholesalers have - individually and as members of Dubai Gold & Jewellery Group – been canvassing their landlords to offer rent relief until such time tourist buyers return in full flow. More than 80 per cent of retail demand at the Gold Souq is derived through these buyers.

“Apart from a few instances of 10 per cent rent reduction, landlords have only provided two- to three months of rent deferment,” said Anil Dhanak, Managing Director at Kanz Jewels, which operates eight outlets within the Gold Souq. “Deferments on their own will not solve any of the retailers’ problems as we are yet to see more than 10-15 per cent of the pre-COVID-19 vistor traffic return.”

Indeed, at some outlets there are more sales staff than visitors through the day. Plus, gold prices at $1,900 plus an ounce is also acting as a deterrent to buying.

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Some of the recent vacancies have come about at outlets that had been operated by the same retailer for decades. Market sources say that even during the various market downturns of the last 40 years, retailers had opted to stay put rather than vacate.

Rents, including that for staff accommodation, represents 20-30 per cent of total costs for a relatively big jewellery operator. HR costs represent the biggest line fixed cost, making up around 30-35 per cent.

Deferments on their own will not solve any of the retailers’ problems as we are yet to see more than 10-15 per cent of the pre-COVID-19 vistor traffic return

- Anil Dhanak of Kanz Jewels

Favouring the new

Even with demand at an all-time low, new retailers have made an entry offering some respite for landlords. Mumbai-based Khushboo Jewellers is all set to open a four-level outlet within the next few days, with one floor dedicated entirely for silver jewellery and accessories.

Then there is India’s leading jewellery brand Tanishq, which is expected to open its first store here. Kanz Jewels itself set up its first store exclusively for diamond collections in June.

But the impression among long-time retailers is one of disappointment at the attitude of landlords. “There was one store where the retailer wanted a reduction to Dh800,000 a year from Dh1.2 million,” said a retailer. “The landlord flatly refused… and the retailer thought it better to vacate.

“Now, the same store was later leased for Dh800,000 to another retailer, but in the process the landlord lost two to three months’ worth of vacant. It will be the same for the other outlets that have been vacated in recent weeks.”

No easy or early solutions

Retailers have responded to these unprecedented by cutting down on their other big fixed cost element – HR expenses. There have been job and salary cuts, and if there is no drastic improvement on the demand side, more pain is on the way for the industry’s workforce by January.

Gold prices are unrelenting

The biggest blow for the trade has been gold’s hold on the $1,900 an ounce and above levels. Sure, it’s a vast improvement on the record $2,000 plus levels it had moved into in August – but the drop since then has not led to shoppers returning.

“Everyone gets the point that gold is a great asset to have when the global economy is in such a state,” said a jeweler. “But convincing a shopper to buy when Dubai Gold Rate is Dh225 a gram (on October 15) is not the same as when the price is Dh179 (on January 1, 2020).”

Other side of the road

Landlords and retailers will also be waiting for the Deira Gold Souq Extension development to open, in and around the area that is now dominated by the Hyatt Regency. When the Extension project is fully up and about, that would be the time when retailers would start thinking about the number of outlets they should retain in the Gold Souq.

“The Extension is creating an updated, state-of-the-art retail environment for the jewellery business… and shoppers, especially tourists, could show a preference to be on that side,” said a retailer. “The mix is right, with more open spaces, F&B outlets and all the rest of it.

“That’s going to be the wake up moment for the gold trade.”

Deira Gold Souq extension
Ithra Dubai's building the Gold Souq Extension, taking the gold retail and wholesale space and experience to a whole new level. Image Credit: Gulf News Archive